Question

The following amortization schedule is for Monty Ltd.’s investment in Spangler Corp.’s $77,500, five-year bonds with a 8% interest rate and a 6% yield, which were purchased on December 31, 2016, for $84,029:

		Cash Received			Interest Income			Bond Premium Amortized			Amortized Cost of Bonds
Dec. 31, 2016											$84,029
Dec. 31, 2017		$6,200			$5,042			$1,158			82,871
Dec. 31, 2018		6,200			4,972			1,228			81,643
Dec. 31, 2019		6,200			4,899			1,301			80,342
Dec. 31, 2020		6,200			4,821			1,379			78,963
Dec. 31, 2021		6,200			4,738			1,463			77,500

The following schedule presents a comparison of the amortized cost and fair value of the bonds at year end:

		Dec. 31, 2017		Dec. 31, 2018		Dec. 31, 2019		Dec. 31, 2020		Dec. 31, 2021
Amortized cost		$82,871		$81,643		$80,342		$78,963		$77,500
Fair value		$82,290		$83,664		$82,263		$80,049		$77,500

Assume that Monty Ltd. follows IFRS 9 and reports interest income separately from other investment income, except for trading investments accounted for at FV-NI.

1. Prepare the journal entry to record the purchase of these bonds on December 31, 2016, assuming the bonds are accounted for using the amortized cost model. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

​2. Prepare the journal entry related to the bonds accounted for using the amortized cost model for 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

3. Prepare the journal entry related to the bonds accounted for using the amortized cost model for 2019. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

4. Prepare the journal entry to record the purchase of these bonds, assuming they are held for trading purposes and accounted for using the FV-NI model. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

​5. Prepare the journal entry(ies) related to the trading bonds accounted for using the FV-NI model for 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

6. Prepare the journal entry(ies) related to the trading bonds accounted for using the FV-NI model for 2019. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

Answer 1

HTM- Held to Maturity ; AFS - Available for Sale   

Debit Credit

1. Debt Investment A/c(HTM) $84,029

To Cash A/c $84,029  

Year 2017

2. Cash A/c $ 6,000

To Interest Revenue $ 5,042

To Debt Investment(HTM) $ 1,158

Year 2019

3. Cash A/c $ 6,000

To Interest Revenue $ 4,899

To Debt Investment (HTM) $ 1,301

4. Debt Investment A/c (AFS) $84,029

To Cash $84,029

Year 2017

5. Interest Receivable A/c $ 5,042

To Interest $ 5,042

Interest A/c $ 5,042

To FVTNI(FVTPL) A/C $ 5,042

Fairvalue gain/ Loss A/c $ 581

To Debt Investment $ 581

FVTNI(FVTPL) A/C $ 581

To  Fairvalue gain/ Loss A/c $ 581

Year 2019

6. Interest Receivable A/c $ 4,899

To Interest $ 4,899

Interest A/c $ 4,899

To FVTNI(FVTPL) A/C $ 4,899

Debt Investment A/c $ 1,921

To Fair value gain/loss $ 1,921

Fair value gain/loss $ 1,921

To FVTNI(FVTPL) A/C $1,921